More often than not, investors interested in Verizon Communications(NYSE: VZ) and AT&T(NYSE: T) are generally most interested in their dividends. Neither company is in strong growth mode, and both stocks carry relatively high yields.
So, let's look at which stock might best be suited for income-oriented investors.
Current dividends
Both Verizon and AT&T have similar dividend yields. Verizon currently pays out a quarterly per-share dividend of $0.665, which is good for a yield of about 6.3%. AT&T, meanwhile, pays out a quarterly per-share dividend of $0.2775, good for a yield of approximately 6.4%.
Verizon, however, has been the much more consistent dividend grower. When the company raised its dividend last September, it marked the 17th consecutive year the company had raised its payout. Over that stretch, its quarterly dividend rose from $0.43 in 2007 to its current dividend.
AT&T, on the other hand, cut its dividend nearly in half in 2022, taking it down from $0.52. It has not raised it since the cut. However, the dividend cut was not an isolated event. It came in conjunction with the sale of its interests in the spinoff of Warner Media into Warner Bros. Discovery(NASDAQ: WBD).
The best way to determine the current safety of each company's dividends is to look at how well its cash flow is covering its dividends.
Image source: Getty Images.
For 2023, Verizon generated $37.5 billion in operating cash flow. At the same time, it paid out just over $11 billion in dividends. That's a dividend coverage ratio of 3.4 times. AT&T, meanwhile, produced an operating cash flow of $38.3 billion in 2023. It paid out $8.1 billion in dividends. That's a dividend coverage ratio of 4.7 times.
The dividends of both companies are very well covered at this point. This leaves both with plenty of cash flow to invest in their businesses, pay down debt, or even buy back stock.
The other thing that can impact dividend payouts is debt and leverage. In order to sustain dividends, companies need to keep their leverage within a reasonable range. Verizon ended the year with $148.6 billion in debt and leverage (net debt/consolidated adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA)) of 3.1 times. For unsecured debt, the metric it likes to cite, its leverage was 2.6 times. Verizon's long-term goal is to get to 2 times leverage on its unsecured debt.
For AT&T, it ended 2023 with a net debt of $130.6 billion. Its year-end leverage was 3 times. The company is projecting to get to 2.5 times leverage by the first half of 2025.
While both companies would like to lower their leverage, with their current cash flows, both can comfortably pay their dividends while paying down debt at the same time.
Looking to grow
AT&T outperformed Verizon on the growth front in 2023, growing its overall revenue by 1.4% to $122.4 billion. Verizon, on the other hand, saw revenue fall 2.1% to $134 billion. On the important wireless front, AT&T grew its revenue by 4.4%, while Verizon saw its wireless service revenue rise by 3.2%.
AT&T added 1.7 million new postpaid wireless subscribers in 2023 while adding 1.1 million AT&T Fiber subscribers. Verizon added 2 million new postpaid wireless subscribers and nearly 1.2 million retail broadband subs.
Looking ahead, AT&T guided to 2024 wireless revenue growth of about 3%, while Verizon guided for wireless service growth of between 2% and 3.5%. AT&T guided for adjusted EBITDA growth of about 3%, while Verizon forecasted adjusted EBITDA growth of between 1% and 3%.
At this point, both companies are looking to show modest revenue growth.
AT&T edges out Verizon
In terms of dividend yield, dividend coverage ratio, balance sheet strength, and revenue growth, AT&T just edges out Verizon on all accounts, although the differences are generally small. However, from a valuation perspective, AT&T is clearly the cheaper stock, trading at a forward P/E of under 8 times versus over 9 times for Verizon. The valuation gap could be due to AT&T's earlier dividend cut, but it has been narrowing.
T PE Ratio (Forward) data by YCharts
Given its cheaper valuation and slightly better metrics, AT&T currently looks like the better dividend stock buy compared to Verizon.
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Geoffrey Seiler has positions in Warner Bros. Discovery. The Motley Fool has positions in and recommends Warner Bros. Discovery. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
